Remember casual Fridays? Back in the late 1990s and early 2000s, when the trend first came into fashion — thanks in no small part to the laid-back aesthetics of dot-com Silicon Valley companies — wearing less-than-formal clothing at the office was just an occasional reward after a long week. But over the last few years, casual Fridays have evolved into casual all-the-time, and it’s led to a growing pandemic in corporate America: Bad dressers. Most people’s idea of “business casual” is no longer as innocuous as khakis and a polo shirt. They’ve begun inserting more personality into their work attire, and their taste in fashion leads something to be desired.

Diane Gottsman, a national etiquette expert and owner of the Protocol School of Texas, recalls teaching a workshop on business fashion in Houston several years ago, in which she encountered a businessman from Atlanta with an unorthodox approach to personal style. “He was wearing a straw paperboy hat, pulled sideways,” she says. “He also had on suspenders and those black-and-white spectator shoes. I probably wouldn’t have noticed him, but he kept talking and raising his hand. He asked me, ‘What do you think of my look?’ He was proud of it. So I said, trying to be diplomatic, ‘Maybe you should take off your hat when you’re inside.’ I thought that was a safe tip. But he said no, he can’t do that, because it helps him with his swagga. And then he got up and strutted down the aisle, with hundreds of people watching him. I literally had to bite my tongue because I wasn’t sure if he was being serious.”

According to a 2007 Gallup poll, 43 percent of office workers admit to regularly wearing casual business attire, up from 32 percent in 2002. (Just 9% wear formal business clothing.) And their ideas of how to define “business casual” has become increasingly eccentric. Ask any corporate image consultant and they’ll tell you stories that sound like the punchline to a bad joke. They’ve witnessed office workers with dyed blue hair and exposed “tramp stamp” tattoos, Hawaiian-style muumuus and Little House On the Prairie pioneer dresses, and bosses who aren’t afraid to wear a speedo at an office picnic.

“American society has become so ridiculously casual,” says Clinton Kelly, co-host of the Learning Channel’s What Not to Wear and author of the upcoming book Oh No She Didn’t: The Top 100 Style Mistakes Women Make and How to Avoid Them. It may be an inevitable result of the dearth in positive fashion role models. “People who are outrageous are the ones getting the most attention,” he says. “Kids coming out of college are watching Lady Gaga on YouTube. They don’t understand that Lady Gaga is selling albums and they’re working in accounting. A meat dress doesn’t really fly at the office.”

There are some people, however, who argue that casual dress at the workplace is just a healthy expression of individuality, and the real problem lies with those who get too easily offended. “Flamboyance in dress and behavior makes people nervous, management and rank and file workers alike,” says Jack Tuckner, a New York-based employment attorney. “The uniformity of dress serves the current American business model by pressing individuals into the service of the corporate person at the expense of the individual; a largely paramilitary model that eschews independent thinkers.” He says that companies are not so much afraid of fashion as they are afraid of signs of life, “as it threatens corporate hegemony, which is, after all, the name of the game, regardless of business size.”

Of course, it’s not surprising that Mr. Tuckner would be defending unconventional fashion, considering that in 2008 his former office manager, Lisa Brockington, accused him of (among other things) wearing a “bondage [slave] collar” while at the office. (Mr. Tuckner denies the allegations. “As a fastidious dresser myself,” he says, “I’d be excessively worried about unsightly neckline bulges caused by the lock.”)

Much of the blame for the growing tide of business casual atrocities belongs to the people in the best position to stop it. Companies like Microsoft and Google, who helped start the trend with their infamous informal or nonexistent dress codes, continue to let their employees have free reign. “At Google, we know that being successful has little to do with what an employee is wearing,” says Jordan Newman, a Google Spokesperson. “We believe one can be serious and productive without a suit, so we don’t have a dress code for employees.”

Even companies that don’t explicitly encourage a “come as you are” work environment are doing something just as dangerous; they’re assuming their employees can figure it out for themselves. The dress code at General Electric, for instance, asks only that workers “use good, professional judgment.” It may not be the best idea, especially after a survey by the (now defunct) department store chain Mervyn’s revealed that 90% of office workers have no idea of the difference formal business attire, business casual and casual.

In recent years, many companies have been trying to remedy the problem with stricter dress policies. A 2006 poll by the Society for Human Resource Management revealed that only 38% of businesses were allowing casual dress among their employees, a significant drop from the 87% tolerance reported during 2001. But after so many years of indulging their bad fashion instincts, it’s not as easy as it seems to backtrack.

“Employees can be like little kids who’ve been told to just eat whatever they want,” says Sandy Dumont, a business image consultant from Norfolk, Virginia. “It doesn’t matter; hot dogs, candy, ice cream. They can have whatever makes them happy. After a year, their teeth are going to rot, their hair gets oily, their skin is bad. You have to step in and say, ‘We’re going to do something about this!’ And they’re going to cry like little babies.”

Her suggestion, not entirely surprising from a professional image consultant, is to bring in a professional image consultant. She remembers being brought in to advise on employee fashion for a Rolex company overseas. In particular, a female employee who was offending the CEO with her “klutzy shoes.”

“He told me, ‘I’m just so tired of looking at these klutzy shoes!’” says Dumont. “They were orthopedic walking shoes because she had a slightly deformed foot. He could never have told her, because she would have stormed out of the office in tears. It’s a good that he brought in an expert, because I knew how to handle it.”

But even with a fashion expert who knows how to deliver bad news, not everybody is ready to give up their casual office clothing without a fight. Debrahlee Lorenzana, a 33-year-old low-level banker, was fired from a Citibank branch in New York City earlier this year, reportedly because her physical appearance was “too distracting” for male co-workers. She responded by filing a lawsuit against her former employers. (The case, according to her lawyer, Gloria Allred, is “headed towards arbitration.”) Allred believes that the issue is less about Lorenzana’s clothes and more about her surgically-enhanced 32D boobs. “As long as they’re dressing professionally,” says Allred, “the size of (an employee’s) breasts should not be an issue in the workplace.”

Not everybody thinks this is a reasonable argument. “A lot of people have large breasts,” laughs Barbara Pachter, a business etiquette coach from New Jersey. “And they’re not all getting fired. If you wear tight clothes, you’re exposing your breasts. If you wear a jacket, you don’t see your breasts. The issue is about overemphasizing certain body parts.”

Although the majority of experts agree that some sort of dress code at the office is a good idea, they also concur that dress codes in a post-casual Friday world can only be ambiguous at best. Ginger Burr, the president of Total Image Consultants in Massachusetts, says that there are just too many variations and opinions on what qualifies as good taste. “If you tried to write a comprehensive dress code and spell it all out,” she says, “you’d end up with a hundred page document.” As an example, she recounts a fashion workshop she conducted with a major national bank. “At one point, we were talking about sandals,” she says. “There seemed to be a consensus that sandals shouldn’t be wore by employees. And then this woman walked in, a very beautifully dressed woman who was also an executive at the bank, and she was wearing sandals. She overheard the discussion and said, ‘Of course we should be able to wear sandals, but they should be nice sandals.’ Well, how would you define nice sandals? Some people think Birkenstocks are nice sandals.”

If dress codes aren’t the answer, what’s the future of business casual? Will the trend eventually fall out of favor, or become even more permissive and outrageous? In Britain, they’re betting on the latter. The Naked Office, a reality TV series that debuted last May on the U.K.‘s Virgin1 network, asked employees at several businesses to show up for their jobs sans clothing, in an attempt to “explore whether flashing the flesh is the ultimate office equalizer.” Seven Suphi, a behavioral change specialist who took part in the show, thinks the experiment “had spectacular business results for those who have risen to the challenge and stretched themselves.”

It’s a fun idea, but probably not in any way realistic. Carolyn Hawkins, spokesperson for the American Association of Nude Recreation in Kissimmee, Florida, admits that her staff rarely comes to work au natural. “The AANR’s association headquarters is located in a downtown strip mall, no pun intended, with a storefront window,” she says, “Therefore as practicality and sensitivity to our neighbors dictates, we dress for the workplace. As this is Florida, skirts, slacks, comfortable tops and such are the norm for myself and my associates to wear to work until we return home in the evening and remove the stresses of the work day world by removing our clothes.”

For the moment at least, “business casual” is in no danger of becoming “no pants casual.” Assuming, of course, that you work in an office with plenty of windows.

(This story originally appeared, in a slightly different form, in the October 8, 2010 issue of Bloomberg Businessweek.)